Rescuing homeowners

The Baltimore Sun

Months ago, when the subprime lending crisis first exploded, experts agreed that the key to avoiding lasting damage to the U.S. economy was to find ways to renegotiate millions of mortgage loans on owner-occupied homes headed for foreclosure. If lenders and borrowers would agree to share the economic pain, new affordable loans could be shaped and the housing market could be stabilized.

Voluntary programs aimed at achieving that goal were established, but the benefits were slim as few banks signed up and there was little relief for homeowners. Meanwhile, ripples from the subprime crisis spread wider and higher to swamp leading investment banks, insurance companies, stock markets and national economies around the world.

Now, after bailing out Wall Street, the Bush administration is reportedly close to agreement with the Federal Deposit Insurance Corp. on a plan to guarantee the mortgages of millions of distressed homeowners. The plan is fair, broadly effective and critical to helping rescue Main Street from the economic crisis engulfing the country.

Under the program, banks or other lenders would agree to reduce the monthly payments of borrowers to affordable levels, by lowering the interest rate, cutting the amount owed or extending the repayment period.

The White House hasn't yet signed off on the plan, and there is still considerable criticism of the idea of offering federal aid to homeowners who took out unaffordable loans. But let's remember: The administration has provided hundreds of billions of dollars to financial institutions that are not entirely innocent victims in this mess, and pragmatic analysts have said with increasing urgency that the failure to help homeowners is threatening to feed a much longer and deeper economic downturn.

President Bush and the Treasury Department must move quickly to implement a homeowner rescue plan. Its estimated cost, $40 billion to $50 billion, is a fraction of the amounts already expended to prop up the nation's wounded financial industry. That's a small price to pay for setting the stage for a recovery that would benefit millions of ordinary Americans.